Free Shipping – These two words hold so much power that most times, as eCommerce business owners, we don’t quite realise it. Free Shipping can save a dying business and free shipping can kill a booming eCommerce business. Everything depends on the way you understand the term. Through this blog post, we intend to empower you with the knowledge that you need to make the most out of free shipping.
But first thing first, is free shipping really “free”?
“No such thing as Free “
Ray Murphy, Managing Director at Intersped Logistics
We second that, Ray.
Free Shipping does not exist. What exists are ways of making free shipping a reality for your business. Why? Around 76% of online shoppers agreed that free shipping is likely to lead them to place an order. It’s the biggest nudge in these times.
Why Amazon, Walmart and Canada Goose can provide free shipping so easily?
With Amazon Prime, Amazon gets more money from the customers and recovers the shipping costs.
Walmart has offers every day and many ways of offering free shipping.
Then there’s Canada Goose, they have started expanding their year-round offerings which brings in more revenue and allows the company to spend more on shipping with an open heart.
But wait a second, we get that free shipping is not actually free but wasn’t it meant to be free?
“Shipping is not free and was never meant to be, it really began with companies marketing it as free and subsidizing those costs through VC money or building it into the product cost. I foresee that in the next decade most customers should see free shipping as a thing of the past.”
Varun Cheemra, DHL Head of eCommerce
Then the only question that remains is, why should your eCommerce business offer free shipping?
This is probably the most searched question in the history of eCommerce and many others before us have attempted to answer it. Most eCommerce businesses are still left wondering. However, we shall shoulder on and try to explain it as well.
Free shipping has become a norm and it has become so because of the benefits attached to it.
“It’s a conundrum. Having some type of free shipping option is now a permanent expectation.”
Krish Iyer, Vice President – Strategic Partnerships @ Auctane
He is absolutely right. The expectations are set by none other than Amazon.
Here are some more reasons why you should consider free shipping for your eCommerce business –
1. Increased Conversion rate – When shoppers see an eCommerce business offering free shipping, they think they are getting a pretty good deal. That’s a fact. Make no mistakes, today’s consumer is extremely aware and probably knows that free shipping is not “free” but the word ‘free’ works psychologically and it works in our favour. This eventually increases the conversion rate.
In fact, research by BigCommerce revealed that 84% of online shoppers said they made a purchase decision solely on free shipping options. Additionally, showing free shipping even before they have purchased anything gives you an edge as a seller.
2. Shoppers expect it – Most eCommerce businesses (69% of all Shopify merchants) offer free shipping these days. So, it would be rather unusual if your business does not. According to Shopify, 66% of consumers expect free shipping for all online orders. Therefore, there should be no doubt that your customers almost expect it and anything less than that causes disappointment.
3. Increase LTV – If you have been promoting free shipping as a brand for years now, you have built a level of trust with your customers. This eventually builds a better relationship between you and your customers. This is important because weak relationships account for 16% of the average customer churn. Good relationships lead to an increase in the Life Time Value or LTV of your customers.
Affording Free Shipping as an SMB
It’s clear now why you should consider offering free shipping. It is imperative to understand how can you, as an SMB or eCommerce store afford Free Shipping?
“One of the biggest hurdles to offering free shipping is balancing the cost and profit margins. Ecommerce businesses must carefully assess their cost structures and develop targeted order fulfilment strategies. Carrier diversification and positioning inventory closer to the consumer are key strategies for unlocking lower shipping costs. By working with multiple carriers and strategically placing products in warehouses or distribution centres near customers, businesses can reduce shipping costs, shorten delivery times, and better meet consumer expectations.”
Timur Eligulashvili, Founder of Logistics Remix
“By encouraging customers to meet a spend threshold for free 2-day shipping, we’ve seen great results without harming our margins. Offering this shipping option to customers has increased our average order value in these zones from $75 to $148.”
Ryan Casas, COO of iloveplum
The three most common hurdles that prevent most eCommerce sellers from offering free shipping are
1. High Shipping Costs – Cost of the entire delivery process.
2. Priority shipping costs a premium – Additional costs that sellers have to pay in order to get priority shipping.
3. Competitor pricing – Other sellers like you are offering the same product at a lower price.
Our research showed us which one out of these three actually affects the seller the most. More than 56% agreed that it was high shipping costs that were their biggest hurdle in providing free shipping. This was followed by competitive pricing and then priority shipping prices.
It is because of these hurdles that eCommerce owners and advisors are not on the same page at times.
“The days of free delivery are numbered,”
Ken Morris, managing partner at Cambridge Retail Advisors
“Free shipping IS complicated. There are a lot of extra costs that can apply on shipping making it costly for the person offering “free” service. I’ve tried free shipping in the past for my website. It hurt me more than it helped me sell more product. And it really ISN’T “free” – it is just added into the purchase price. I’d rather pay actual shipping than a padded increase in the price of the product!”
Monica Thornton, LTL/FCL Freight Provider
First is that it teaches customers to devalue the fulfilment, that it has no value and that paying for it is wrong. Second, because customers assume low to no shipping charges, you are forced to accept sub-par service, customer experience and execution in order to get the lowest rates possible in order to give it away for free
John McClymont, Director, Operations Strategy & Continuous Process Improvement Director, Brink’s Inc
Most consumers still “hit the buy button” when shipping is Free. Free shipping options will continue to be offered by many e-tailers. However, Free Shipping might only be offered as an incentive, like minimum purchase checkout threshold or via marketplace subscription and via special sales promo / discount code etc). Consumers will eventually see shipping charges added in the checkout as the norm, much similar to how airlines implemented fees for checked bags and other services etc.
Mark Waverek, Advisory Board Member – Plaidmark Management and Consulting Services LTD
We are confident that your hurdles are similar and that you are looking for a better way to find your way out of this. Here’s how we recommend dealing with these hurdles.
Dealing with high shipping costs – One effective way of dealing with high shipping costs is choosing a multi-carrier shipping option. In this case, too many cooks DO NOT spoil the broth. Multi-carrier shipping lets the carrier compete for your business without giving any one carrier an absurd amount of power.
Dealing with priority shipping prices – Priority shipping is a game-changer for eCommerce businesses. In a world where a product like yours can be available on twenty other marketplaces, priority shipping is a way to make your delivery stand out. However, this service is very expensive for eCommerce businesses. This can be worked out if you choose a carrier that understands your volumes and your budget.
Dealing with competitive pricing – When other people in the same industry offer lower rates, it’s very challenging for your customers to stay with your business at a higher price. This problem can be solved if you drive the focus of your customers towards the other perks that you can offer. Delivery experience is one such perk that triumphs all other perks.
Calculate your free shipping minimum threshold
What is the number that allows you to earn profits while offering free shipping? You have to consider a few factors before going there. One of them is shipping costs. Take account of your total shipping costs and the cost of your product. Take into account your packaging costs.
In order to set a free shipping minimum threshold, consider two metrics:- average order value and gross profit margin. Your minimum threshold must be 30%-40% above the average order value. Say your average order value is $55 and your gross profit margin is 65%. Also, let’s say your average shipping cost is $10.
Let’s see if a proposed minimum cart value say $65 works:
$65 – $55 = $10 ( Minimum cart value – Average order value)
We multiply the result by gross profit margin = $10 * .65 = $6.5.
This means that you must shell out an additional $3.5 in shipping costs per order.
Hence in this case, it is ideal to have the minimum cart value for free shipping in the north of $70.
Popular stores in Canada and whether they offer free shipping
Nike free shipping – Yes, Nike offers free standard shipping for orders over CAD 190 or more. They charge CAD 10.95 for orders less than CAD 190.
Etsy free shipping – Etsy is a marketplace. Here, sellers can choose to offer free shipping.
Canada Goose free shipping – Canada Goose is known for their parkas but they moving towards year-long offerings. They offer Free Standard shipping on all orders.
Lululemon free shipping – Lululemon has become a favourite in no time. They offer free shipping.
Shoefreaks free shipping – Shoefreaks offers free shipping on all orders throughout Canada. Their warehouse is in Montreal.
Smashbox free shipping – Smashbox offers free shipping on every order in Canada. Their beauty products have exceptionally high quality.
IKEA free shipping – No, Ikea does not offer free shipping. The closest that comes to it is their Click and Collect service which charges a very low fee.
Urban Outfitters free shipping – No, they do not offer free shipping. They charge a rate of $7.95 for standard delivery and $24.95 for express delivery.
Bath and Body Works free shipping – Bath & Body Works do not offer free shipping usually but sometimes they do. They have a ton of offers on their website on most special days.
Zara free shipping – Zara does not offer free shipping in Canada. However, you can pick up your order for free at any Zara store in Canada.
Free shipping is no longer a luxury. But, if you jump the gun without knowing the ins and outs, you are more likely to find yourself in losses. Who wants that? Not you. You are a smart seller who understands why free shipping matters. If you want to minimize your shipping costs Try ShippingChimp.